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Cabinet to decide on fuel price hike: Deora

The Union Cabinet is likely to take a call early next week to raise fuel prices, besides a possible re-jig in duties.

business Updated: Jan 31, 2008 18:00 IST

The Union Cabinet is likely to take a call early next week on raising petrol and diesel prices, besides a possible re-jig in duties to contain the impact of surging international crude oil prices.

Four of the seven-member Group of Ministers on fuel prices, headed by External Affairs Minister Pranab Mukherjee, met on Thursday morning and decided to leave the final decision to the Cabinet, Petroleum Minister Murli Deora told reporters in New Delhi. "Of course, we discussed this (price increase) issue (but) the committee has decided to leave it to the Cabinet," he said, adding that the Cabinet could meet as early as February 4 or 5.

The GoM is understood to have narrowed down to two options - raising petrol price by Rs 4 or Rs 2 a litre and diesel by Rs 2 or Rs 1 per litre. "I can't just say that we have firmed up a recommendation and have forwarded it to the Cabinet. The GoM may meet again just before the Cabinet to make a firm suggestion," he said.

Deora and Mukherjee, along with Agriculture Minister Sharad Pawar and Finance Minister P Chidambaram, dropped the idea of raising domestic cooking gas (LPG) prices and instead asked the Finance Minister to cut excise duties.

Sources said to effect a minimal price hike, Chidambaram was asked to cut customs duty on crude oil and petroleum products and Rs one a litre excise duty reduction on petrol and diesel to avoid the around Rs 71,000 crore loss on fuel sales expected by the state oil firms in 2007-08 fiscal.

"Finance Ministry is very cooperative," Deora said but did not say if Chidambaram had agreed for duty cuts.

Indian Oil, Bharat Petroleum and Hindustan Petroleum currently lose Rs 10.6 a litre on petrol, Rs 11.6 per litre on diesel, Rs 331.4 per LPG cylinder and Rs 19.89 a litre on PDS kerosene.

Sources said ad-valorem duty rates on crude oil and petroleum products had resulted in a windfall rise in revenues for the Centre as well as state governments due to the rise in price and quantity imported this year.

A five per cent cut in customs duty on crude oil and petroleum products and a Rs 1 per litre reduction in excise duty on petrol and diesel would result in Rs 15,530 crore annual reduction in revenues for the central government.

Petrol and diesel prices were last raised in June 2006 when crude oil was at 67 dollars a barrel. It is at 92 dollars a barrel this year. LPG prices were last raised by Rs 20 per cylinder in November 2004 when crude was at 34 dollars a barrel. Kerosene prices have not been changed since 2002 when crude was at 23 dollars per barrel.

During April-September, oil bonds worth Rs 11,257 crore were issued to the oil companies and Rs 8,788 crore assistance was received from upstream companies like ONGC and GAIL.

A Rs one per litre increase in petrol price would give Rs 90 crore a month additional revenue to public sector oil companies. A similar hike in diesel would fetch Rs 360 crore a month. A Rs 10 per cylinder increase in LPG prices would result in Rs 58 crore additional revenues every month.

Going by the present formula of government oil bonds meeting 42.7 per cent of the under-realisation on petrol, diesel, LPG and kerosene and 33 per cent coming from upstream firms, Rs 17,000 crore deficit has to be bridged, sources said.